Credit – Fact vs FictionYour credit score is one of the most important measures of your profile. This single financial metric plays a huge part in multiple domains. It does so much more than simply allowing you to qualify and get approved for a mortgage loan. For example, employers can look at your credit score and decide if they want to hire you or not. An insurance company will also determine the rate you will pay using your credit score (and other factors). Therefore, it is in your best interest to have the highest credit score possible. Many people make the mistake of ignoring their credit, downplaying its importance or thinking that their credit score is fine as it is.

You need to make sure that your credit score is high, or at least on the path towards getting higher. You will not be able to improve it overnight, and it is always subject to change depending on various factors. Even if you pay everything on time and have zero financial struggles, you need to regularly review your credit score.

Don’t sit around, wondering if you will be able to qualify for a mortgage loan approval. You need the very best of the best in the mortgage lending industry helping you out. Every individual is different, and no two people will follow the same strategies and tactics for building and fixing their credit scores. With decades of first-hand experience in helping thousands of customers across all walks of life, our lending partners will provide a customized solution that fits your goals. You will know exactly what to do, when to do it, and how to do it. It’s really that simple when you allow Let Us Lend to help you with your home loan needs.

Let one of our professional mortgage partners give you the right solution today – get in contact with us to learn how you can qualify to purchase the home of your dreams.

But before you do, you should be aware of what is fact and what is fiction when it comes to your credit score:

FICTION: As long as I have a good income, I will automatically have a good credit score.

FACT: Whether your income is on the low end of the high end, it has absolutely no effect on your credit score. Not only that, but your spouse’s income (or credit score) has no effect because you are dealing with an INDIVIDUAL credit score. Furthermore, both credit scores are often checked during important processes such as qualifying for a mortgage loan (depending on the type of loan you need).

In addition, things such as savings, investment accounts, checking accounts, alimony, and other financial assets play no role in determining your credit score. They are not even listed on your credit reports, so they should not be used to explain away a bad credit score. Your income is only significant if it allows you to pay your bills on time and properly manage your assets, which in turn will help you build good credit.

This is an approximate (and generalized) breakdown of the formula that is used to calculate one’s credit score, as specifics are not published by credit bureaus:

  • Payment history = 35%
  • Credit history = 15%
  • Account balances = 30%
  • New credit applications = 10%
  • Various forms of credit in possession = 10%

FICTION: I will never be able to get a loan because of a poor credit score, and that score can never be changed.

FACT: For starters, it is 100% possible to fix a bad credit score. It is a constantly-changing number that only reflects your risk in the present moment. Adopting positive financial habits and consistently following them is crucial to building and fixing your credit score, as it is affected by positive AND negative records (bankruptcies, late payments, discharges, etc.) that stay on your credit report for 7-10 years.

Here is a small sample of some of the financial habits you can act on today. Due to the complexity of the calculations and factors used to calculate your credit score, you cannot always determine if a certain strategy will increase your credit score by a certain number of points. However, you will make steady improvements over time if you stick to the habits:

  • Make monthly payments for ALL your bills ON TIME, IN FULL (i.e. don’t carry over a credit balance into the next month by making minimum payments). If you can make payments a few days in advance, that’s the superior option to go for.
  • Remove all inaccuracies and errors on your credit point

You must use credit in order to build credit, but it has to be done correctly. It is a myth that you need to carry a balance or go into debt. This myth is why people see no improvements in their credit scores or see them fall over time.

If you happen to have a higher credit score, don’t think that you can get away with a single late payment. It is an extremely important factor in calculating your credit score, and it will lower your score far more than if you already had a low credit score. In short, late and delinquent payments hurt your credit score more than on-time payments help build your score.

Finally, it is worth mentioning that there are many companies that will help people with low credit scores find alternative loan plans (ex. VA loans, FHA loans, etc.). Luckily, at Let Us Lend, our lending partners have the ability to help these credit challenged customers.

FICTION: I can’t check my credit score or my credit report because I will get penalized with a lower score!

FACT: This is a blatantly false myth that exists due to a simple misunderstanding. There are two ways to have your credit report examined for your credit score: The “hard” inquiry, and the “soft” inquiry.

The hard inquiry involves a lender or creditor (i.e. a third party) examining your credit report/score. This happens when you are applying for a credit card and/or an installment brand loan. In this context, you will see a small decrease in your credit score that is only temporary. The examination gives off the appearance of being unable to meet certain financial responsibilities, which explains the small dip.

The soft inquiry DOES NOT lower your credit score. If you are checking your credit report by yourself through a major credit bureau using tools that allow you to monitor your credit, your score will not be changed at all. Alternatively, a creditor might only examine one section of your credit report (and not the entire thing).

FICTION: I can easily improve my credit score by closing old/inactive credit cards and accounts. Problem solved!

FACT: Not quite! Here’s why this can backfire and actually cause your credit score to go down: First, you are also making your credit history much shorter. The average age of all your accounts plays a major part in calculating your credit score, so it is in your best interest to keep them open regardless of how often you use them. Furthermore, closing a credit card DOES NOT remove its history from your credit report. Having a longer history of paying off balances in full and wisely using your credit will do more to improve your credit score.

Second, you are eliminating your currently available credit. Another major factor that is included in calculating your credit score is the ratio between your debt and your available credit (a.k.a. your debt utilization ratio). If you remove the amount of available credit you have, your credit score goes down because the debt utilization ratio gets higher. Higher ratios are perceived as risky by lenders, and it may stop them from approving you for a loan.

Now, keep in mind that you can certainly close cards. You can certainly close newer credit accounts while reducing your credit limits at the same time. Additionally, you can close older cards if you are mindful of how it will affect your debt utilization ratio. It is much better to have a few cards and use them properly than to have multiple cards and use them poorly.

FICTION: Certain factors out of my control (age, gender, etc.) will negatively affect my credit score and there is nothing I can do to fix it!

FACT: By law, creditors are NOT allowed to have the following factors have any influence in their decision to provide loans to borrowers (nor are these factors used to calculate credit scores):

  • Age
  • Race
  • Gender/Sex
  • Marital Status
  • Nationality
  • Religion

FICTION: I only need to look at one FICO credit score because they’re all the same – no harm done, right?

FACT: The truth is that you can have three different credit scores, each one coming from a different major credit reporting agency (Equifax, Experian, TransUnion) that uses slightly different scoring models to generate different credit reports. Those reports, in turn, are used to determine your credit score. FICO is not the only credit score used, but the overwhelming majority of lenders use it to make key lending decisions.

You should get a free credit report for each of the three credit reporting agencies once every year, regardless of your financial status, and read them to ensure there are no inaccuracies or errors in your credit history. Remember that these reports do not provide the actual credit score you are looking for; the credit score itself is calculated based on certain information within the credit report.

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